HR Due Diligence Training Final2

August 2014

Human Capital Focus Areas in M&A

HR Due Diligence and Post Merger

Integration Planning

©2014 Deloitte Touche Tohmatsu India Private Limited

Learning objectives

At the end of this program:

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M&A Lifecycle and Human Capital Focus Areas

Focus Area - HR Due Diligence

Focus Area – Leadership and Culture in M&A

Focus Area - HR Integration in M&A

M&A Lifecycle

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Common M&A terms

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General term for the process by which a buyer comes to own the stock or assets of a

corporation.

A legal procedure whereby one corporation is combined with another and the original company

legal status no longer exists.

‒ For example, Aon offered shares of Aon stock in exchange for the surrender of Hewitt stock.

The sale of a piece of a business.

Occurs when a parent company sells a minority (usually 20% or less) stake in a subsidiary for

an IPO or rights offering.

Acquisition

Merger

Divestiture

Carve Out


Key parties involved in M&A transactions

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The company being considered for purchase.

The company and/or investors who own the Target (i.e. parent company or public stockholders)

The company and/or investors seeking to acquire the target.

Financial advisor, legal counsel, accountant, tax advisor, etc.

The Target (or

Company)

The Seller

The Buyer

Deal Team


M&A Lifecycle Overview

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Pre-announcement Announcement Close

Execution

• Develop M&A

strategy and

capability to

compliment

corporate

strategy and

business model

• Detailed

screening of

potential targets

on the basis of

strategic fit,

cultural fit, and

value potential

• Determine

appropriate deal

structure to align

with synergy

targets and

strategic

considerations

• Capture

anticipated value

and mitigate risk

by planning and

managing the

combination

process

• Assess

valuation,

synergy targets

• and risks, and

potential fit

• Capture

anticipated value

and mitigate risk

by planning and

managing the

separation/setup

process

• Plan & manage people integration

Business Focus

Human Capital Focus

M&A Strategy Target

Screening

Due

Diligence

Transaction

Execution Integration Divestiture

Approach

Phases with significant Human Capital activity

• Key talent and

workforce

transition

planning

• Plan for Day 1

readiness

• HR Financial Due

Diligence

• HR Operation

Due Diligence

• HR Statutory

Diligence

It is an investigative process of

collecting and analyzing

appropriate, relevant data

before reaching a decision with

a goal of understanding the

advantages, disadvantages and

risks associated with the

decision

Focus Area – HR Due Diligence

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HR Due Diligence

People

Culture Process

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The DNA of an organization

HR Due Diligence Result benefits

• Snapshot of the internal and external corporate

identity and business circumstances

• Recognition and status of the formal and informal

leaders within your organization

• Synergies of HR processes and systems

• Recognition and motivation of the key employees as

well as the strategy to keep loyalty

• Action plans and scenarios to support change

management any time

• SWOT analysis of both individuals and close-

working-groups

• Position and relationship analysis

• Strengths to highlight, weaknesses to improve,

opportunities to take and threats to avoid.

While due diligence in other area is a standard process for

M&A´s, leading companies are only now recognizing

the significance of a well-founded HR due diligence.

Because: Approximately 60% of all mergers fail due to the

fact that the human capital was not correctly evaluated in

the previous contemplations!”

Source: Deloitte publications

In any business, people costs range from 30% to 70% of

annual operating expenditures, making it by far the largest

investment the organization makes each year

The intellectual assets are usually worth three to four times

the tangible book value of a business, on average across

all industries Source:“The Age of Unreason’ by Charles Handy


Risks that Need to be Uncovered in HR Due Diligence

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Can we align our people?

Can we overcome our

differences?

Can we put these

companies together or be

Stand Alone on Day?

Can we identify potential

liabilities?

• Key Skills/Workforce

Segments

• Succession Plans

• Talent Retention

• Employee Relations

Climate

• Collective Bargaining

Agreements

• Corporate Style

• Dominant Player

• Hostility

• Decision Making Style

• Leadership Style

• Collaboration Style

• Paths to Success in the

Organization

• Layoffs

• Organization Structure

Differences

• Infrastructures

& Systems

• HR vendors

• Transition Service

Agreements

• Benefit Plans & Costs,

Including Post-Retirement

• Pay, Philosophy,

Structures & Obligations

• Executive Compensation

and “Golden Parachutes”

• Retention and Severance

Plans

People Cultural Structural / Operational Financial

Four Areas of Potential Risks

Failure to identify and quantify all relevant risks can potentially result in the “wrong” decisions being made:

decision to pursue the deal; deal price; other transaction terms.


Approach for HR Due Diligence

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Research Public

Information (if any)

• Review proxies, government filings, plan summaries provided to members; Petitions to unionize and unfair labor practices

Identify /

Request Data

Conduct Data Room

Assessment

Conduct

Interviews

Quantify HR

Prepare Due Diligence

Report

Provide Input to Deal

Negotiations

• Review data provided; identify and request additional information as needed

• Map critical HR due diligence needs

• Interview target’s leaders; focus on direction strategies, internal assessment with competitors, key culture, talent, retention issues, HR delivery model, systems, and people

• Major categories of liability should include, executive comp and Pension, Equity

based Plans, HR operational ongoing run-rate and one-time costs

• Produce a short, high level report highlighting all HR liabilities

• Provide input to business leaders regarding major liabilities and HR synergy opportunities

• Negotiate “employee matters” section of the purchase agreement or Transition Services Agreements

1.

2.

3.

4.

5.

6.

7.

Tim

elin

e –

2 w

ee

ks


HR Due Diligence Scope

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Ke

y A

ctivitie

s

HR Financial Diligence Compensation &

Benefits

Organization and

Processes

Performance

Management &

Retention Programs

Statutory Compliance

& Labor Relations

Quantify items

impacting the deal cost

to uncover risks and

liabilities

Identify how the target

structures and delivers

its various reward

programs

Compare the current

state and compatibility

of the two firms’ overall

strategy for managing

people

Identify the target’s

retention strategy for

core skills and

experiences

Assess how the target

manages exposure to

risks and statutory

regulations

• Analyze financial liability through assessment of: firms’:

– Employees Provident fund scheme

– Employees superannuation scheme

– Payment of gratuity act

– Provision of Bonus and Leave encashment

– Employee State Insurance Act

• Assess Compensation Plans, including competitive and short-/long-term incentive analyses

• Assess Defined Benefit Pension Plans

• Assess Defined Contribution Plans, including investment policy

• Assess Health & Welfare Benefits Program, including plan design and funding

• Review HR service delivery and associated costs

• Compare organizational structure and reporting

• Asses the compatibility of HR policies and processes

• Performance management strategy and drivers

• Assess key skills / competencies / workforce segments

• Assess retention program parameters (participants, timing, payout etc.)

• Understand potential severance costs

• Asses all HR and pay related statutory documentation

• Analyze current employee contracts and associated risks

• Assess Trade Union relations and associated risks

HR Operational Diligence HR Statutory

Diligence

HR Financial

Diligence


Sample Data collection Sheet

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SAMPLE


HR Financial Due Diligence

Quantify items impacting the deal cost to uncover risks and liabilities analyzing key provisions of the company sponsored

benefits & welfare and retirement programs. The scope would include :

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Scope of Diligence Impact

Employees Provident fund scheme Lack of timely records or discrepancies may impact buyer

financials

Employees superannuation scheme Financial impact on the deal

Coverage of Payment of gratuity act.

Financial impact on the deal. Non-adherence or

irregularities call for legal issues

Liability to buyer needs to be reflected

Provision of Bonus and Leave encashment

Irregular payments may cause cost escalations for buyer.

Deviation in buyer vs. seller practices may impact

employee morale too

Employee State Insurance Act Irregularities in documents may call for legal action and

legal and financial liability for the buyer

Other mandatory / statutory benefits like maternity/ leave/ group insurance etc.

Deviations in practice and procedure as per Govt. of India

may cause legal liability to the buyer

Employee Loan outstanding's This has huge impact on company financials as well as

reflects employee- employer relationship and liability


HR Operational Diligence - Compensation & Benefits

Identify how the target structures and delivers its various reward programs

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Assess Compensation Plans, including short-/long-term incentive analyses

Deviation in practices of buyer

and seller may cause

employee attrition and also

impacts financial liability for the

buyer

Analyze Retirement plans

• Any multi-employer pension plan arrangement and historical liabilities

• Confirm with management the absence of any other benefit obligations such as for postretirement medical benefits, benefits, or deferred compensation awards.

• High level comparison of programs to programs of buyer and to local laws and regulations

Practice impacts culture and

people hence apart from

financial liability the area also

indirectly reflects culture of the

seller

Assess Health and welfare benefits structure

• Analyze the current health and welfare benefits including but not limited to: leave of absence, medical, dental, life, paid leaves, disability, etc.

• Assess actual historical benefits costs

• High level comparison of programs to programs of Buyer and to local laws and regulations





seller


HR Operational Diligence - Compensation & Benefits

Identify how the target structures and delivers its various reward programs

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Review Employee Insurance benefits

• Medical insurance - coverage, premium and actual utilization data

• Accident insurance - coverage, premium and actual utilization data

• Life insurance - coverage, premium and actual utilization data





seller


HR Operational Diligence – Organization and Processes

Compare the current state and compatibility of the two firms’ overall strategy for managing people

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Review HR service delivery and associated costs including:

• Review current HR delivery model and associated allocated costs

• HR budgets and costs

• Review HR software, systems and licenses

Expectations of employees

from the “to be “ set up

depends on existing people

systems, hence evaluation

determines extent of

integration initiatives needed

post the deal finalization

Compare organizational structure and reporting

• Review Organization chart

• Location wise headcount analysis

• Review Grades, levels and titles in the organization

• Understand Roles and responsibilities across functions, departments and locations by reviewing Role specifications

The structural representation

reflects the cultural orientation

of the organization. Flat

structure is more informal

whereas hierarchical set up

demands for much more

robust and detail

communication plans post deal

finalization

Asses the compatibility of HR polices and processes

• Review all HR policies (Hire to Exit)

• Review entire employee life cycle HR processes and standard operating procedures (SOPs)

Work environment designed

through unique HR procedures

and policies needs to be

sensitized with new

environment. Hence the

analysis reflects the extent of

initiatives required for

managing change


HR Operational Diligence - Performance Management & Retention

Programs

Review and analyze current Performance Management System and data for individuals in management roles

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Identify key employees in the organization and assess current performance levels and ratings scores

Can lead to significant diversion of time and energy of key executives if there is lack of alignment between actual performance and rating

Succession plans for senior management roles

The critical workforce needs to be fit in well in the new system The fit shall be in line with the growth prospects in seller’s organization

Process used for management of poor performance

Lack of performance impacts productivity as well stresses the buyer budget hence evaluation of procedures for managing poor performance becomes necessary

Assess key skills / competencies / workforce segments The analysis of skills and capabilities assists judgment of “fit” of the key personnel's

Assess retention program parameters (participants, timing, payout etc.)

High attrition impacts buyer financially and morally hence analysis of reasons of attrition and existing programs becomes a necessity


HR Statutory Diligence - Statutory Compliance & Labor relations

Assess how the target manages exposure to risks and statutory regulations

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Review all HR related statutory and compliance documents including:

• PF contribution details - Number of employees covered, Copies of returns filed with the agencies by the companies

• ESIC contribution details - Number of employees covered, Copies of returns filed with the agencies by the companies and outstanding details if any

• Filing of Employee income tax returns

• Employee Labor Welfare - Copies of returns filed with the agencies by the companies and outstanding details if any

• Number of contractual/outsources labor and details of labor contractors/outsourcing vendors

• Contractual labor (R&A) act - Registration details of the principal employer and contractor

• Details of employer /employee legal case (if any)

• Pending issues and correspondence with Labor Commissioner’s office, factory inspectors, labor officials etc., if applicable

Legal and financial liability on buyer


HR Statutory Diligence - Statutory Compliance & Labor relations

Assess how the target manages exposure to risks and statutory regulations

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Review Employee and Labor Contracts:

• Employment contract /Job Contract /Labor contract

• Minimum wages check as Payment of Wages Act


Assess Trade Union relations and associated risks

• Location wise - Union details and number of employees affiliated

• Applicable collective bargaining & Works Council and Tripartite agreements

• Employee Disciplinary cases (if any)

• Details of union vs. employer legal cases ( if any)



Key Outcomes of Due Diligence

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Identification and quantification of “land mines”

Identification and quantification of deal risks and integrations risks, challenges and opportunities

Baseline for integration planning across the function

Foundation for initial change management and cultural integration assessment


Key lessons learned from due diligence experience…

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Insufficient Financial Information

• Broad cost range estimates and optimistic forecasts should not attempt to compensate for areas in

which the Seller has not adequately disclosed information.

• All due diligence reporting should include full disclosure of areas in which sufficient information has not

been provided by the Seller.

1.

Disjointed Due Diligence Teams

• There needs to be a clear linkage between all diligence teams to cover interdependencies and gaps.

• While the accounting team may have responsibility for most of the Balance Sheet and Income

Statement, they may not have responsibility for the benefits and compensation costs.

2.

Inadequate Knowledge Transfer

• Despite transfer of documents and findings, there is minimal transition of knowledge and issues from

due diligence to integration planning.

• Early involvement in the diligence phase is recommended to ensure tighter linkage with

Integration/Divestiture teams

3.

Inadequate Attention to Culture

• Cultural mismatches can greatly slow and limit the effectiveness of integration processes.

• Critical incompatibilities in decision making processes, management style, conflict resolution,

information sharing or hoarding should be identified and assessed for potential impact during due

diligence.

4.

Focus Area - Leadership and Culture in M&A

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©2014 Deloitte Touche Tohmatsu India Private Limited Deloitte 23

View of the Board:

“The reasons for the merger are clear but there

may be some problems and I feel uneasy investors

reaction”

View of the CEO:

“I see the best way forward, I am all for it –Now!”

Time C

ha

ng

e

Cha

ng

e

View of middle management:

“There are just too many things to do over and

above my day job! I can’t see how we can do this”

View of employees:

“What’s going on? What does this mean for my job

security? Who are the people I will be working

with in the future? How do I need to change?”


Key employee concerns boil down to five questions once a deal is

announced

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Will my pay

and benefits

change?

Will I have

a job?

Who will I

report to?

Will my title

and status

change?

Do I need to

relocate?

To retain key talent and maintain business continuity, address the “Big 5” with a

communications and change management strategy


The impact of culture on M&A

Cultural affects: Lessons Learned

How people work

together

• Merged companies create new teams with cross-legacy compositions and new

interfaces between unfamiliar teams – if ways of working are inconsistent, the

processes or handovers may break down and synergies may be threatened

• Culture influences how decisions are made, and in a merged organization different

decision-making styles (e.g. centralized vs. decentralized) can lead to slow

progress around key decisions

Decision-making

style

• Values and belief systems influence behavior – consider a merger environment

where some believe that teamwork constitutes success versus others who believe

success is gained through individualism

Value and beliefs

regarding success

• Cross-legacy risk tolerance and risk culture differences can have the potential to

influence organizational outcomes, especially if there is a lack of awareness of risk

orientations

Risk tolerance

• Ingrained attitudes can be hard to change resulting in an unwillingness to

implement new strategies and resistance to work through the inevitable difficulties

in creating a smooth-functioning merged company Ability to change

Cultural influences during M&As can have significant impact on value realization


Keys to effective cultural integration

1 Engage the top leadership team in the culture initiative – leadership behavior will be the most

powerful driver of the desired future state culture

2 Cultural change should be proactively and deliberately managed, and engrained within the

overall integration program

3 Clearly define and establish a shared understanding of the desired future state culture for the

combined entity

4 Design the future state culture to support the corporate vision, business strategy, and merger

integration objectives

5 In designing the future state culture, don’t assume that legacy cultural strengths can

necessarily be combined – it is possible they may not be compatible

6 Monitor and measure cultural change over time and adjust cultural interventions as necessary


Leadership Journey

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To achieve integration success, leaders must adapt quickly, demonstrate conviction

and consistently reinforce the vision of the future organization

Employees having positive integration stories cite leadership, communications, management of

employee issues and cultural compatibility as success factors

Effectively address “me”

issues

Consistent

communication

Deliver clarity and focus

Take action and decision

Manage resistance

Champion change

Demonstrate

commitment, confidence,

and purpose

Inspire trust and

community

Key Leadership

Behaviors:


Cultural Assessment Activities

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Desktop Review*

Review of values, brand strategy, engagement surveys, organisational

strategy, integration history and current operational challenges and hot spots

1

Culture Diagnosis

Carry out cultural diagnostic to identify ways of working across the

organisation, as well as engagement levels

2

Summary Findings

Review and analyse findings in line with corporate strategy, current

organisational issues, emerging HR strategy and good practice. Determine the

gap between current and target culture

3

Target Culture Definition

Define target culture and develop design principles. Examine and identify the

organisational levers that can be ‘pulled’ to effect change within the

organisation

4

Culture Change interventions*

Identify tangible activities to improve ways of working, including quick wins and

priority interventions to address hot spots and conflict areas

5

Biggest positive shift

Dominant Cultural Traits

Red Tape

Bottom

Line

Business Horizons/

Visions

Internal Integration External

Orientation

Norms of Behaviou

r

CulturePrint™ Tracking future cultural shifts

100 90 80 70 60 50 40 30 20 10

Culture Assessment

Tangible interventions

to improve ways of

working

Identifying cultural

differences

Activities

Focus Area – HR Integration in M&A

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60% of all mergers fail due to errors in the approach and

execution of the merger. Many of the obstacles to a

successful acquisition are people or culture related…

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• Rapidly capture cost and revenue synergies

• Streamline organization structure and critical business processes

• Minimize disruption to customers

• Execute an issue-free transition

• Maintain focus and current business momentum

Desired Outcomes Typical Results Approach Errors

Execution Errors

Insufficient Information About

Partner 18%

Never Developed New Product

8% Overestimated

Market 16%

Wrong Partner

18% Environment

Changed Drastically

28%

Too Far Removed From Core

Competencies 12%

Leadership Unclear

18%

Cultures Too Different

22%

Poor Leadership 23%

Wrong Focus 16%

Poor Integration 21%

Success 40%

Failure

60%

• Cost reduction targets not achieved in 70% of cases

• Only 25% earn ROI

• Customers notice and are frustrated by change

• First 4 to 8 months productivity reduces by 50%

30% of Failures

70% of Failures


Steps in integration planning

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Human Capital Integration Activities

• Set the strategy and

structure for full

integration

• Develop plan of action

and milestones

Integrated workplan

• Coordinate major

activities for all team work

streams

• Establish dependencies

for critical project activities

• Create mechanism for

detailed tracking

• Provide detailed activities

and timing for the teams

to execute and measure

against

• Create mechanism for

status reporting

Integration team

work plans

ID MilestoneID Task Name Finish TeamsWeAreDependentUpon Functional Team MilestoneCategory Duration Start TeamsDependentOnUsTeamsWeAreDependentOnMilestoneMilestoneNotes Milestone

2 Program Milestones Mon 1/3/05 0 days Mon 1/3/05

364 Clean Room Milestones Mon 1/3/05 0 days? Mon 1/3/05

365 CR1 Clean Room Established Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

366 CR2 Clean Room Procedures and Templates Launched Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

367 CR3 Initial 3 - 5 Analysis Requests Prepared by Teams for “Dry-Run” Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

368 CR4 ‘Dry-Run’ of Initial Analysis Requests Submitted and Critiqued Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

369 CR5 Initial Analysis Requests Prepared and Submitted Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

370 CR6 Initial Clean Room Staffing Plan Prepared Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

371 CR7 Submission of Additional Analysis Requests to Clean Room Complete Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

372 CR8 Training and Entry of Clean Room Personnel Complete Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

373 CR9 Clean Room Analyses Complete Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

374 CR10 Logistics Set for Clean Room Read-Out Sessions Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

375 CR11 Clean Room Opens Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

376 CR12 Clean Room Read-Out Sessions Complete Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes

1 Company C Milestone Map Mon 5/16/05 1 day Mon 5/16/05

20 Marketing W ed 6/15/05 69 days? Thu 3/10/05

21 Mktg1 Working Hypotheses of Business Segments Thu 3/10/05 Business Sales MarketingConsumer and Business Segment Definitions 0 days? Thu 3/10/05Business Sales & Care yes

27 Mktg7 Develop Menu/ Master List of Potential Retention and Up-Sell/ Cross-Sell

Offers and Products/ Services Portfolio

Fri 3/11/05 Marketing Day 1 Retention and

Up-Sell/ Cross-Sell

0 days? Fri 3/11/05 IT,

Development

yes• Develop specific

objectives by team

• Provide timing and

sequence for project

activities

• Link milestones and align

resources

• Create team structure and

schedule

• Serve as an indicator of

potential project timing

issues

HR Blueprint

Roadmap


Crucial roles for Integration Planning

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Three Crucial Roles for HR

Organisation Design

&Staffing

Change Management &

Communication

HR Functional Integration

What are the major Org Design and

Staffing focus areas during

integration?

• Creation of selection criteria

• Level 1, 2 and 3 appointments

• Post Day 1:

• Create org structures

• Define position requirements

• Employee assessment /

selection

What are the priorities to

integrate ƒquickly – primary Day 1

concerns?

• Level 1, 2 and 3 leadership ƒ

• Selection criteria (to show clarity /

fairness)

• Work closely with Change

Management and Communication

Team(s)

How to alleviate the ƒanxiety among

employees and customers in all

organisations?

What are the major areas that ƒneed

Change Management and

Communication during integration?

• Employee Experience

• Customers / Suppliers

• Trade Relations

• Investors

• Media / PR

How can we minimise customer

/ ƒemployee disruption?

What roles do leadership and ƒkey

decision makers need to play?

What are the major HR focus

areas ƒduring integration?

• Compensation and Benefits

• Performance Management

• Training

• Employment Matters /

Compensation & Benefits

• HR Service Delivery

• International Deployment

What are the objectives of the

HR ƒfunctional workstreams?

Who are the key integration decision

makers and what is the decision

making process?

What are the key issues for ƒDay 1

readiness?


Organization Design and Staffing: Organization Design

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Leadership Appointments

Organization Structure

Operating Model

1 2 3

Assessment and Slating

Position Requirements

Outplacement Final Selections

Redeployment. Retention and Transition

5 6 7 8 4

The typical first three steps of the organization design process focus on creating a vision for the

organization and stabilizing leadership in preparation for Day 1 and the rollout of the new structure.

Step 2: Develop Organization

Structure

Create guidelines for organization

(spans of control, leveling, etc.)

Determine roles and positions

required to support the Buyer &

Target operating model

Define reporting relationships

Analyze staffing requirements by

function, location and position

Identify and document current

state positions targeted for

reduction

Step 1: Define Operating Model

Confirm core Buyer & Target

strategic objectives including

product portfolio, geographic

footprint, position in industry, and

growth strategy

Agree on how to develop, sell and

deliver products, service their

customers, and support the

business

Tightly coordinate with Growth

Strategy team and Synergy team

Develop Day 1 & End State

Operating Models

Step 3: Determine Leadership

Appointments

Create accelerated leadership

appointment process

Determine Level 1 leadership

Inform/announce L1 leaders

Work with L1 leaders to define L2

Inform/announce L2 leaders

Train L2 leaders in selection

process to determine L3+

organization


Organization Design and Staffing: Employee Selection

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Step 4: Define Position

Requirements

Gather or develop job/position

descriptions for each Buyer &

Target position in the new

organization

Determine the skills, capabilities

and responsibilities for each

Buyer & Target position

The organization planning approach outlines key steps for Buyer & Target HR Partners and business

leaders to assess and select employees into their organizations in alignment with their headcount synergy

targets.

Step 5: Conduct Assessment

and Slating

Develop assessment and slating

guidelines

Facilitate review of pool of talent

and determine potential

candidates for each open position

Develop comprehensive,

comparable list of employees by

position for redundancies,

retention, and exit

Step 6: Make Final Selections

Determine criteria for making final

selection decisions

Identify employees who should

remain in the organization, and

those who will be part of the exit

process

Identify employees to be

considered for redeployment

within Buyer & Target

During selection, continuously

verify that the outcome of the

selection process meets synergy

targets

Leadership Alignment

Org Structure

Operating Model

1 2 3




Redeployment, Retention and Transition

5 6 7 8 4


Organization Design and Selection: Employee Transition

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Step 7: Manage Outplacement Process

Conduct disparate impact analysis

Define legal requirements, and prepare severance

packets

Determine outplacement support

Conduct notification training with managers

Conduct final exits

The workforce transition approach facilitates key steps and strategies to stabilize the new organization

after final selection decisions.

Step 8: Manage Redeployment Process

Extend offers to selected employees and

announce new organization

Define retention criteria and create retention plan

– Identify critical, at-risk employees

– Determine best programs. i.e., engagement,

talent management, growth/ development

programs, recognition, completion bonus

Prepare for comprehensive knowledge transfer

and transition, including training

Facilitate redeployment for identified employees

Leadership Alignment

Org Structure

Operating Model

1 2 3




Redeployment, Retention and Transition

5 6 7 8 4


Crucial roles for HR in Integration Planning

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Organisation Design

&Staffing

Change Management &

Communication




integration?



• Post Day 1:




selection



concerns?



fairness)



Team(s)



organisations?






• Trade Relations

• Investors

• Media / PR









• Training









making process?


readiness?


Employee Experience & Change Management Strategies

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CM Strategies OBJECTIVES

Organizational

Readiness and

Change

Assessment

Management understands the individual needs of

specific employee segments (by function or

geography). Organization understands changes

and is ready to embrace them.

Leadership &

Manager

Alignment

Leaders with credibility and influence visibly

support the change. Management participates in

Workforce Transition activities and visibly support

the approach

Communication

and

Engagement

Employees are well informed about, involved in,

committed to and understand the changes. They

believe management understands and is

addressing their concerns and is following a fair

approach to workforce transition.

Training

Leaders and employees have the training to

develop (a) the Change Management and

leadership skills they need to effectively manage

the transition and (b) the technical skills they need

to perform their new jobs.

Culture

Assessment

and Planning

Alignment of the organization's values, and beliefs

and behavioral drivers— thus generating the

desired behaviors.

Culture

Assessment

& Planning

Leadership

& Manager

Alignment

Communication

& Engagement

Organizational

Readiness and

Change

Assessment

In the context of a merger, change management also encompasses the organization’s employees’ and

leaders’ readiness to accept, engage, and demonstrate commitment to the new organization.

Training

Change

Management

Strategy



Best Practices in Communication- “Plan the Trip Well”

Most important aspect is to understand and articulate

the need for change. And to manage articulate some of

the best practices used:

• Define the need for change in

a merger.

• Create a clear picture and

enthusiasm

• Articulate and endorse the

vision.

• Let leaders cascade

messages

• Develop workforce transition

and communication plan

• Clearly communicate the

project sponsor to help

remove roadblocks

• Put on a roadshow

presentation for leaders

• Create Leadership Alignment

• Proactively facilitate cross

functional sessions

• Create and aggressively

communicate a dashboard

that highlights the timelines to

avoid conflicts

• Include a detailed change

management and

communication plan

• Constantly keep checking the

maturity

1. Getting everyone on Board 2. Make sure someone is

removing the roadblocks

3. Check the rear view mirror

• Define the medium of

communication depending on

the level of stakeholders


• Hold Project kick off

sessions to clearly spell

out the expectations

and objectives

• Need to communicate

using metaphors &

analogies to describe

strategic direction

• Revisit and reinforce

roles and

responsibilities regularly

• Communicate key

changes to systems,

processes and

organizational structure

• Communicate how the

roles and

responsibilities will

change

• Create “role impact

guide”

• Create change networks,

a multi directional

communication channel

gives a better feel about

the merger

• Provide monitoring and

feedback mechanisms

4. Put the horse before the

cart 5. Prepare for detours 6. Ask for directions

along the way

• Create clear messages

and responsibilities for all

employees

7. Get people ready for

the transition

• Create necessary FAQs

and help desks for

employees

Lack of clarity around structure, activities, roles and

responsibilities can result

in confusion and resistance, making mergers

extremely difficult. Include these aspects as a part of

communication plan

Best Practices in Communication- “Hit the Road”


• Provide sufficient post

merger support by

communicating purpose

• Repeat communication

• Communicate and celebrate

quick success

• Reiterate the benefits of the

new phase through effective

channels of communication

• Managing expectations is

critical

• Develop change agents and

enable them communicate

the

8. Stay on the right tracks

9. Anticipate and mitigate

resistance

10. Identify and deal with and

defuse unanticipated

impacts

Planning the timelines for the merger, enable

organizations to successfully transition to the new

phase

Best Practices in Communication- “It’s a Journey and not a

Destination”


Communication is a very important and active role in an integration

Deloitte 42

Articulate

Repeat

Reiterate

Articulate the need for change, vision

and purpose to the organization LOUD

and CLEAR

Aim to create a repeatable model for

Mergers and Acquisitions. Keep

REPEATING the communication

during the process

Create enough COMMUNICATION

CHANNELS to help reiterate the

purpose


Crucial roles for HR in Integration Planning

Deloitte 43


Organisation Design

&Staffing

Change Management &

Communication




integration?



• Post Day 1:




selection

• Retention strategies



concerns?



fairness)



Team(s)



organisations?






• Trade Relations

• Investors

• Media / PR









• Training









making process?


readiness?


HR Functional Integration – Typical Structure and Scope

Deloitte 44

HR Functional PMO

Compensation HR Service

Delivery, HRIS & Payroll

Benefits & Policies Performance Management

Staffing & Recruiting

Onboarding Training Labor Relations

• Core data migration /

conversion

• Payroll integration /

separation

• Vendor management

• Compensation analysis

• Job leveling

• ST and LT Incentive /

Equity plans

• Comparative benefit

analysis

• Policy analysis and

development

• Program administration

• Open enrollment

• Program design

(linkage with company

objectives)

• Unified process and

infrastructure

• Recruiting strategy

• Process and systems

integration / separation

• Needs assessment

• Learning Management

integration / separation

• Development of

programs

• Collective Bargaining

Agreements

• Works Councils and

consultation

• Employment contracts

• New Hire requirements

and processing

• Employee orientation

Global Coordination

Synergy Planning


HR Functional Stakeholders

Deloitte 45

HR

Employees:

• Is my compensation changing?

• Are my benefits changing?

• Is my title changing?

• Where do I go to make data changes /

utilize self-service? HR Leads:

• What do I need to know about

supporting colleagues from

both legacy organizations?

Procurement:

• How will employees make

purchases?

People / Hiring Managers:

• How do I make changes to

employee data?

Facilities / Real Estate :

• Will employee badges be

provided to enable access to

buildings?

• Will employees be relocating?

Finance:

• Are employees mapped to cost

centers?

• How will approval levels be set?

IT:

• Are the downstream

application requirements

able to be met?

Planning the HR Functional integration / separation requires alignment amongst stakeholders who rely on

HR data and services.

Sales:

• How will we administer sales

compensation?

• How do employees get business

cards?


Deloitte’s eminence in M&A Integration has resulted in several

publications, cutting edge thought ware and top recognition

Deloitte 46

Year of Living Strategically

Beyond Human Resources Integration. Is a merger the right time to

launch a transformation?

The Overconfidence Dilemma: Why Companies Exaggerate Their

M&A Skills

Integration, The Cisco Way

Consumer Products: M&A

Avoiding M&A Disconnect

Half-Truths of Integration

Anatomy of Acquisitions

HR Management Handbook for Acquisitions

Addition by Subtraction: Realizing Carve-Out Value

Merger Aftershocks: Surviving the people challenges of a post-

merger integration

Shortlist of publications

Cutting edge thought ware

M&A Compendium "Making the deal work:

Perspectives on driving merger and

acquisition value" — collection of articles

based on real-life examples from some of the

most complex M&A integrations

M&A IT Compendium ‘Wired for winning?

Managing IT effectively in M&A’ —

compendium takes a deep look into IT issues

related to mergers, acquisitions, and

divestitures

M&A Straight Talk Book Series — M&A Lies

(And why they’re sometimes true)

Publications are available free of cost for

Deloitte clients. The M&A library can be

accessed at

http://www.deloitte.com/US/M&ALibrary

Top recognition

Punit Renjen, the leader of the Deloitte’s

Mergers and Acquisition Services, was

recognized by Consulting Magazine as one

of the “Top 25 Consultants in 2007.”

This recognition reflects our clients’

endorsement of Punit’s effective leadership

in bring the best of Deloitte’s M&A

Integration services to them

http://www.deloitte.com/US/M&ALibrary

http://www.cfo.com/

http://www.reed-electronics.com/eb-mag/

http://www.thedeal.com/


What our Research says ..

Deloitte 47

Figure 1: Focus and timing of key priorities

What characteristics

distinguish the high

performers from the others?

How are those companies

able to beat the odds and

achieve sustained growth

post-integration? .. d

Eight customer-focused

priorities emerged as

important enablers of

successful growth

associated with M&A

transactions. (Ref: Figure 1)

Deloitte Whitepaper : Deloitte Review:

Growth through M&A , 2012

Measuring true Post Merger Success?

Based on the extent to which targets like cost synergies, cross selling or

know-how transfer are met. But, for a true merger success, reaching

these targets alone isn’t enough. Factors like implementation costs going

over budget or key personnel leaving the company in droves may result

in major delays, even as key targets are attained. Deloitte in its study,

thus extended its definition of PMI success to include criteria such as

implementation efficiency and social compatibility – seen in the

company’s management systems, its underlying ideology, and in its

relationship with employees (for example, employee participation,

working hours, pay, health and social security benefits, etc.)


Case Studies

Deloitte 48

Deal Rationale

Lenovo entered into a strategic

alliance with IBM where IBM

remained the preferred services and

customer facing provider and Lenovo

would act as IBM’s preferred PC

supplier.

The deal rationale includes gaining

synergies from:

• Complementary product lines

• Extended customer base

• Varied geographical presence

• Supply chain and distribution

efficiencies

• Combined intellectual property

Integration Approach

Lenovo’s integration approach

factored in IBM’s initiatives and

developed a timeline to complete the

biggest cross border acquisition by a

Chinese company.

• Designed and implemented a new

global operating model to ensure

focus on international operations

while maintaining dominance in

China.

• Integrated the sales force, and

supply chain and demarked a clear

go-to-market model for each

geography to realize synergies.

Key Lessons

• Communication: The combined

entity proactively communicated a

clear value proposition to each key

customer and stakeholder, to

protect its customer base

• Customer focus: Lenovo

rationalized the entire product

portfolio post acquisition based on

the combined capabilities of the

merged entity

EFFECTIVE COMMUNICATION, CUSTOMER FOCUS….


Case Studies

Deloitte 49

LEADERSHIP COMMITMENT, EMPLOYEE ENGAGEMENT, SYNERGY FOCUS

Deal Rationale Integration Approach Key Lessons

• Start targeting larger ITES deals

• Expand the service footprint by

getting some of the niche service

offerings

• Expand the geographical coverage

of business

There were a few challenges in the

deal:

• Smaller company was acquiring a

larger one

• The deal was to put a lot of

financial pressure on the books

• There was a distinctive difference

in culture of the 2 firms

Realizing upfront that integration is

going to be tricky, a very structured

approach was put in place for the

integration program

• Leadership commitment: Top

leaders (CXOs) committed a lot of

time in driving the integration

program

• Employee Engagement: Involving

people from both sides upfront in

the integration program led to a

much faster integration (4-5

months)

• Communication: This was given

the highest priority across work

streams

• Synergies: Revenue and cost

synergies were key focus areas

and integration of sales teams was

done while identifying cost ones


Case Studies

Deloitte 50

Deal Rationale

With low design costs, remarkable

efficiency and an extensive

dealership network, Chrysler

appeared to be the perfect match for

Daimler-Benz.

It was anticipated that the new entity

would take advantage of synergy

savings in:

• retail sales,

• purchasing,

• distribution,

• product design, and

• research and development

Integration Approach

While the merger was initiated to

obtain synergy savings, the

integration process was aligned to

independent functioning of the units:

• Distribution and retail sales

systems largely remained

separate, owing generally to brand

bias

• Differing product development

(While Daimler-Benz remained

committed to its founding credo of

"quality at any cost", Chrysler

aimed to produce price-targeted

vehicles) philosophies continued to

hamper joint purchasing and

manufacturing efforts as well

Key Lessons

• Culture conflict: Inability to

effectively manage the larger rifts

in business practices and differing

management sentiments

• Talent retention: Instability and

productivity dip due to exit of key

members of the legacy Chrysler

management, which changed the

work ecosystem at Chrysler

CULTURE CONFLICT NOT ADDRESSED, INEFFECTIVE TALENT RETENTION….

http://www.google.co.in/url?sa=i&source=images&cd=&cad=rja&docid=ACUPztJMg8hfbM&tbnid=jmppaEY0w1hjbM:&ved=0CAgQjRwwADibAg&url=http://www.gograph.com/stock-illustration/white-thumb.html&ei=5mOBUZTnF4zjrAfwpID4AQ&psig=AFQjCNGV8MCAwy6zJ7AhfbA9eUKEicYu8A&ust=1367520614451264


How do the expectations we have of leaders change during the

integration?

How to prepare to drive change and lead employees during the

transition?

“It is not the strongest species that survive,

nor the most intelligent, but the ones who are

most responsive to change”

……..Charles Darwin

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